By Vijay Pal Dalmia, Advocate
Supreme Court of India and High Court of Delhi
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What will be the fate of an application filed for compounding of offence after one year during the course of prosecution under the Income Tax Act? Further, whether it is necessary to deposit the compounding fees before actual decision of compounding by the Income Tax Authorities?
The answer lies in the judgment of the case title Vikram Singh Vs. Union of India of Delhi High Court, which pertains to the terms of a circular dated 23rd December, 2014 issued by the Central Board of Direct Taxes (CBDT) issuing the guidelines for compounding of offences under Direct Taxes Law & Practice, 2015. Inter alia, its title 'compounding procedure' under clause 11(v) states as under:
"...The competent authority shall pass the compounding order within 30 days of payment of compounding charges. Where compounding charge is not deposited within the time allowed, the compounding application may be rejected after giving the applicant an opportunity of being heard. The order of rejection shall be brought to the notice of the Court immediately through prosecution counsel in the cases where prosecution had been instituted...."
It is important to note that the circular dated 23rd December, 2014 does not stipulate a limitation period for filing the application for compounding. What the said circular sets out in para 8 are "Offences generally not to be compounded". In this, one of the categories which is mentioned in sub-clause (vii) is: "Offences committed by a person for which complaint was filed with the competent court 12 months prior to receipt of the application for compounding".
The above clause is not one prescribing a period of limitation for filing an application for compounding. It gives a discretion to the competent authority to reject an application for compounding on certain grounds. Again, it does not mean that every application, which involves an offence committed by a person, for which the complaint was filed to the competent court 12 months prior to the receipt of the application for compounding, will without anything further, be rejected. In other words, resort cannot be had to para 8 of the circular to prescribe a period of limitation for filing an application for compounding. For instance, if there is an application for compounding, in a case which has been pending trial for, let us say 5 years, it will still have to be considered by the authority irrespective of the fact that it may have been filed within ten years after the complaint was first filed. Understandably, there is no limitation period for considering the application for compounding. The grounds on which an application may be considered, should not be confused with the limitation for filing such an application.
This has to be also understood in the context of the object of providing for compounding of offences. There is an acknowledgement that the judicial system is not as efficient as it is intended to be. There are trials, even in non- serious offences, that have been pending for decades. It is in the public interest, apart from the interest of the Department itself, that some closure is brought to such cases which may be pending interminably in our Court system. It is for this reason that some discretion has been vested in the officers of the Department to compound offences. It provides an opportunity for some assessees, notwithstanding that their appeals as regards the assessments may be pending, to come forward to have their offences compounded. It does subserve both public interest as well as the interest of the Department itself that on some reasonable terms such offences, which may not be considered serious, are compounded. The guidelines have to be understood only in that context.
The court in the above mentioned case held that it would appear from para 11(v) of the above Circular dated 23rd December 2014 of the CBDT that where an applicant seeking compounding of the offences does not pay the compounding fee upfront, his application need not be considered at all. Nothing in Section 279 of the Act or the Explanation thereunder to permit the CBDT to prescribe such an onerous and irrational procedure which runs contrary to the very object of Section 279 of the Act. The CBDT cannot arrogate to itself, on the strength of Section 279 of the Act or the Explanation thereunder, the power to insist on a 'pre-deposit' of sorts of the compounding fee even without considering the application for compounding. If that is the understanding of para 11(v) of the above Circular by the Department, then certainly it is undoubtedly ultra vires Section 279 of the Act. The Court, accordingly, clarified that the Department cannot on the strength of para 11(v) of the Circular dated 23rd December 2014 of the CBDT reject an application for compounding either on the ground of limitation or on the ground that such application was not accompanied by the compounding fee or that the compounding fee was not paid prior to the application being considered on merits. Court held that the question of payment of the compounding fee, if any, would arise, only if upon considering the application on merits, the Department is of the view that the prayer should be allowed subject to terms that are reasonable and subserve the object of Section 279 of the Act.
Equivalent Citation: 394ITR746(Delhi), 247TAXMAN212(Delhi)
The judgment on which the present article is based, can be accessed from http://lobis.nic.in/ddir/dhc/NAW/judgement/12-04-2017/NAW11042017CW68252016.pdf
Case titled: Vikram Singh Vs. Union of India
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